Are companies that actively manage their environmental impacts worth more?

Waste heat is invisible to the naked eye but costly.

In short – yes.  They’re worth more money than those that don’t.  Regardless of your feelings about the environment, as long as you care about money, then you should be more willing to invest it in a firm that manages its impacts.

Some of you will say that of course, that’s because such companies know about regulations and meet them, so they face lower risk of fines or emergency costs.  That is certainly true, but it is not the main reason such companies are worth more.  Even without any fines or emergencies, those companies are likely to grow faster than their peers.

This is the finding of a recent piece of research from academics at the University of California.  They don’t look at why this would be so, but they do demonstrate that it works.  Companies that disclose their emissions aren’t just being “good citizens”, they’re also doing smart business.

In fact, there are two likely reasons for this – and both point to a conclusion that managing your environmental impacts will boost the value of your business. 

First, the group is self-selecting.  Those that benefit from reporting will do so.  That means the reports will almost always come from those companies that a) measure their impacts already, so there’s little extra cost in reporting, and that also b) will suffer no great embarrassment – in particular, it will be those for whom impacts are falling, or rising slower than the business as a whole is growing.

Second, the old saying “what gets measured, gets managed” is true, and this is especially true for cost areas like energy and materials.  Business leaders hate seeing cost per unit of output go up, because it means that they either need to accept less profit or charge more money.  When impacts are reported, they are usually directly connected to the use of resources – for example Greenhouse Gas Emissions relate to the use of fuel and power.  If the measures of consumption per unit of output go down, it’s good news – but no one will be working hard on the process of making that happen if there is no one measuring the result.

Should your firm report its emissions, or other environmental impacts?  My view is that this is the wrong question.  Yes, the research showed that this was associated with growth and value, but in my view it is not the reporting itself that generated this – it is the act of measuring impacts and thinking about cost-effectiveness that led to these firms outperforming the markets.  Because they were in a position to manage their costs down, they thrived.  Companies that measure their impacts will manage them better.  Managing impacts drives company value.  The reporting was just a signal to the market.

Would you like to explore how managing your firm's impacts could boost your growth and increase value?  Contact Julia at julia@jlsbm.co.uk, or (07766) 333864.

Why your business customers want you to cut carbon

Recent research from The Carbon Trust reveals a potentially unsettling truth for the B2B market: multinationals are not just addressing their own greenhouse gas emissions.  They are also increasingly including carbon in their selection criteria for suppliers.  Within three years, the vast majority will do so – only 10% say otherwise.

Why this move – is it part of these multinationals’ attempts to look green?  The report ascribes the trend to “shareholder pressure”.  Are these shareholders investing in an increasingly ethical way, or are they looking for financial value?  I would suggest the latter - in other words, this isn't a fad.  It's part of a trend towards shareholders actively looking after the value of their investments.  Suppliers should take note.

It is not only shareholders who know that low carbon can translate into good value.  Sourcing professionals look for signs of quality and efficiency to ensure that they are getting the best goods at the best price.  Low carbon emissions signal efficiency – that a supplier is using less inputs for the same output.  That will translate into a sustainably lower cost structure, from which the buyer hopes to benefit.  Multinationals are sourcing low carbon because it’s often cheaper, and is likely to get even more competitive if fossil fuel costs rise further.  Shareholders and management want to know that their companies are managing for value.

A quote from Chris Harrop of Marshalls plc is particularly revealing: “By choosing suppliers of responsibly sourced goods not only do we cut carbon emissions but invariably there are cost and efficiency gains to be had, which all adds up to a strong competitive advantage.”  Perhaps it’s nice to be green, but it’s good business to be cost competitive, and paying attention to carbon in the value chain helps firms solidify this advantage.

So, suppliers now have another reason to address emissions, if cost competitiveness itself were not enough.  Multinationals will be expecting suppliers to report on, and compete on, greenhouse gas emissions.   Their suppliers will be asking the same questions right down the supply chain.  If your business customers are not already asking you to reveal to your carbon footprint, they soon will.